Gold has been one of the hottest investments of the last 6 months taking the place of silver which was the hot one the previous 6 month period. Due to the outstanding performance many investors are looking for ways to gain exposure to rising gold prices. There are several ways to invest in gold and I will briefly go over each one.

#1 – Buy Physical Gold in the form of coins or bars.

The Krugerrand and the American Gold Eagle are the two most popular 1oz coins and both trade for about a 10% premium over the price of gold. They both have very liquid markets making them easy to buy and sell which is important.

There are also gold bars available which range from 1 gram to 400 Troy ounces. Just for reference the U.S. gold price is typically quoted in Troy Ounces and there are approximately 31.1 grams in a troy ounce. This makes it easier to compare prices for different sized gold bars.

The benefit of physical gold is that you have actual physical possession of your gold in case there is ever a complete collapse of the international monetary system. The down side is that you have to have a secure place to keep your gold so it isn’t stolen, commercial storage is an option but then you incur additional costs.

#2 – Buy Gold Futures

Gold Futures were the first way I ever bought gold back in 1987 and continue to be my preferred way to make large purchases of gold. The fact that I can hold 100 oz of gold for a few thousand dollars (currently $185,000 worth of gold for $5500) is very appealing and allows me to really capitalize on the trend without tying up all my capital. The down side is that same leverage, with gold moving $20-60 per day you have to be able to handle swings in your account of $2-6000 per day. There is also a mini-gold contract which I frequently trade that is 1/3 the size of the Comex Gold Contract. This contract has become very active in the past few years so is a very good way to go.

#3 – Gold ETFs or ETNs

The Gold ETF has become very popular over the past several years since GLD began trading in 2004. In fact, GLD has become the second largest ETF based on Assets Under Management behind only SPY which is the S&P 500 ETF which basically started the whole industry. The Gold ETFs are backed by physical gold which is stored on behalf of the trust holders. There has been some concern as to whether there is enough gold in storage to completely back up all of the outstanding ETF shares. Those who have an issue with these types of allegations should stick with physical gold (coins or bars). Since GLD is currently trading at roughly $186 per share (1/10th ounce of gold) some individual investors might be more interested in IAU from iShares which trades at $18.60 for (1/100th ounce of gold) as it makes round lot share purchases much more affordable.

There are also Leveraged Gold ETF and ETN options available for not only playing the upside but also capturing the downside of the gold market. UGL (2X long ETF) and DGP (2X Long ETN) both seek to replicate 200% of the daily price move in cash gold prices. The leveraged short gold etf – GLL (2x Inverse ETF) and DZZ (2x Inverse ETN) seek to provide 200% inverse correlation to the daily price movement of cash gold. In other words if gold fell 1% on a given day the goal of these funds is to rise 2%.

#4 – Purchasing Gold Stocks or Gold Stock ETFs

Gold stocks have long been a favorite way for investors to participate in bull moves in the gold and silver markets. Gold miners tend to be leveraged to the price of gold so in theory they can go up and down much more on a percentage basis than the actual price of the metal.

I tend to use the Gold Mining ETF (GDX) instead of choosing an individual company as past history has shown it’s difficult to pick the right one. Also, mining companies tend to be volatile along with mine results so company specific risk is a definite hazard.

If you crave even more volatility you can go with the junior miners which tend to be in the development stages and offer additional volatility. In this case I would definitely stick with the Junior Mining ETF (GDXJ) instead of trying to choose individual winners. Junior mining companies are capable of dropping 50% or more with very little warning so they tend to be horrible investments for the average investor.

For those who want to trade a Leveraged version of the gold stocks Direxion now offers a Triple Leveraged (3X Long) Gold Stock ETF trading under the ticker symbol NUGT and a 3X Short version – DUST for those who want extreme volatility. These are designed to be trading vehicles and are definitely not designed for buy and hold investors.

There you have it. These are the 4 basic ways that individual investors can go about investing in gold. Each way has it’s pros and cons so you simply have to decide which is right for your situation!